Economy growing slowly but steadily
Friday, June 4, 2010
The headlines right now are ominous -- from the European debt crisis to a gargantuan gulf oil spill to renewed political tensions in several corners of the world. Financial markets have faltered as a result.
But the U.S. economic recovery is still plugging along.
That is the message from the latest wave of economic data, including several reports Thursday. And Friday morning, the Labor Department plans to release what is expected to be the best report on job growth in years, though the numbers will be boosted by temporary hiring by the Census Bureau.
It all adds up to continued steady -- though hardly exceptional -- economic growth, despite various threats to its continuation.
Recent data "suggest that the recovery is more broad-based and self-sustaining, and perhaps even stronger than anticipated," Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, said Thursday in a speech in Oklahoma, even as he acknowledged that the European crisis will have a "modest net negative" effect on growth.
Thursday's data showed the various elements of the recovery. Consumer spending has continued its gradual rise, as reflected in a 2.6 percent increase in sales last month at major retail chains compared with May 2009. The corporate sector is expanding steadily, with activity at service businesses rising at the same rate in May that it did in April, according to a survey by the Institute for Supply Management.
That progress is resulting, if slowly, in an improved job market. The number of people filing new claims for unemployment insurance benefits dipped last week to 453,000, a drop of 10,000 from the previous week. And the payroll-processing firm ADP announced its estimate that private employers added 55,000 jobs in May.
The reports Thursday followed a slew of data this week pointing to a similar conclusion, including an index showing continued strong growth in the manufacturing sector in May and better-than-expected sales of cars and trucks.
Friday's employment report is the most important release of the week and could provide the strongest evidence yet of whether the economy is maintaining its momentum. Analysts predict that the economy added 536,000 jobs in May, which would be the most gained in a single month since 1983. But much of that expected gain is due to workers hired to perform the once-a-decade census who will lose their jobs in the second half of the year.
Economists forecast solid growth in private payrolls as well, expecting 180,000 jobs to have been added outside the government. That would be down a bit from April, when private payrolls rose by 231,000, but suggests that businesses continue to ramp up their hiring.
And that, in turn, will be the key to the recovery continuing apace through the second half of the year. So far, consumers have increased their spending by reducing savings. Job growth -- and a resulting rise in incomes -- will be key to a self-sustaining recovery.
"If you get a strong job-growth number, that will go a long way in allaying some of those concerns about the sustainability of consumer spending," said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management.
Still, the unemployment rate is expected to edge down only slightly, to 9.8 percent from 9.9 percent, which reflects the continued dire situation facing American workers. Even as jobs are being created, some workers are returning to the labor force, keeping upward pressure on the unemployment rate.
Speaking in Detroit, Federal Reserve Chairman Ben S. Bernanke emphasized that high joblessness can have long-lasting consequences.
"High unemployment imposes heavy costs on workers and their families, as well as on our society as a whole," Bernanke said at an event where he encouraged banks to resume making loans available to quality borrowers, aiming to use his bully pulpit to fight one of the factors that has held back the economy.